Autore
HERRENDORF, Berthold

Titolo
Exchange rate pegging, transparency, and imports of credibility
Periodico
European University Institute of Badia Fiesolana (Fi). Department of Economics - Working papers
Anno: 1995 - Fascicolo: 15 - Pagina iniziale: 1 - Pagina finale: 46

This paper studies the credibility of a low inflation policy in a two country Barro-Gordon framework. When the nominal exchange rate floats and inflation is targeted, the realized inflation rate is in part uncontrollable due to stochastic disturbances. In contrast, a pegged nominal exchange rate can in principle be perfectly controlled. Given the foreign authority is precommited to low inflation, exchange rate pegging is therefore also more transparent. It is shown that if real shocks to productivity are similar in both countries, then the higher transparency of exchange rate pegging can lead to lower domestic equilibrium inflation than when inflation itself is targeted. This is interpreted as an import of credibility.



Testo completo: http://hdl.handle.net/1814/540

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